Panda bonds aid in virus fight

Credit: REUTERS/THOMAS WHITE

By Carol Chan

HONG KONG, April 3 (IFR) - China’s Panda bond market has emerged as an alternative venue for public sector issuers and companies raising funds to respond to the coronavirus pandemic.

Last week, New Development Bank, the multilateral development bank created by the BRICS countries, raised Rmb5bn (US$705m) from a Panda bond public offering to help fund a Rmb7bn emergency assistance programme loan to the Chinese provinces of Hubei, Guangdong and Henan, which will help finance increased expenditure on public health.

Meanwhile Hong Kong-listed smartphone maker Xiaomi issued Rmb1bn Panda bonds in a private placement, with part of the proceeds to be set aside for expenses related to epidemic control.

"China’s domestic bond market has been relatively shielded this time around compared with theglobal market and we've seen a window available for issuers," a banker on NDB's deal said. Bonds that raise funds to combat the coronavirus have received robust demand from domestic financial institutions because of the government's support measures, the banker said.

NDB’s deal was the first coronavirus-themed Panda bond from a multilateral financial institution, although other multilateral institutions such as the African Development Bank and the Inter-American Development Bank have recently issued coronavirus-themed US dollar bonds.

The offering attracted strong demand from both onshore and offshore investors, which allowed it to price the bonds at a tighter yield than its previous issues, the banker said. "As a high credit quality multilateral issuer, it has won support from high-quality offshore investors including central banks and sovereign wealth funds."

The three-year Panda bonds were priced at par to yield 2.43%, near the tight end of the indicative range of 2.37%–2.97%.

ROBUST DEMAND

The pricing translated to 4bp tighter than China Development Bank's three-year benchmark curve. Most of the bonds in its previous issue were priced flat to CDB's curve, according to the banker.

NDB is rated AA+ by both S&P and Fitch, while the Panda bonds are unrated. CDB is rated A1 by Moody’s and A+ by S&P.

Total subscriptions stood at 2.99 times the issue size. If only orders with a yield of 2.43% or tighter are included, the deal was covered twice.

The bonds were issued off a Rmb10bn programme that NDB has registered with regulators. It still has Rmb2bn remaining following the latest issue.

Headquartered in Shanghai, NDB was established by Brazil, Russia, India, China and South Africa to mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.

For Hong Kong-listed Xiaomi, its Rmb1bn 365-day Panda bonds were priced at 2.78%, inside the indicative range of 2.6%–3.4%.

The deal, the Cayman Islands-incorporated company's first onshore issue, was 2.2 times subscribed. It was also the first Panda bond issue from the technology sector.

The bonds were the first tranche under a Rmb8bn debt programme that it has registered with regulators.

Xiaomi also plans to use the proceeds for loan repayments and working capital.

Industrial and Commercial Bank of China was the lead underwriter and bookrunner on NDB's deal. Bank of China, Agricultural Bank of China and China Construction Bank were joint underwriters.

For Xiaomi's deal, BOC was the lead underwriter and ICBC was joint underwriter.

Earlier this year, sanitary napkins and baby diapers maker Hengan International Group and gas distribution company China Gas Holdings issued Panda bonds, with part of the proceeds slated for working capital related to epidemic prevention and control.

(This article will appear in the April 4 issue of IFR Asia magazine. Reporting by Carol Chan; Editing by David Holland)

((C.Chan@thomsonreuters.com; +852 2912 6604;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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